September 8, 2005 - 11:50 AM

Yushchenko fires government

By Olena Horodetska

KIEV (Reuters) - Ukraine's President Viktor Yushchenko sacked his government on Thursday as the team which led the "Orange Revolution" less than a year ago broke apart amid infighting and accusations of mass graft.

Yushchenko, who has pledged to stamp out the corruption widespread under his long-serving predecessor Leonid Kuchma, told a news conference he would ask regional governor Yury Yekhanurov, 57, to form a new team.

But he sought not to completely alienate the charismatic Yulia Tymoshenko, a key figure in the mass protests late last year that propelled him to power and who until Thursday had been prime minister since his election in January.

The sackings could set the stage for a standoff between Yuschenko and Tymoshenko, who heads her own party, when Ukraine votes in a parliamentary election in March 2006.

"These people remain my friends. It is very difficult but today I must remove this Gordian knot," Yushchenko said, accusing his outgoing government of lacking team spirit.

"I set one task for the new team -- to work in a united team. I do not want any more the intrigues between two or three people that were determining the state policy."

The sacked prime minister was due to make her first public comments on Ukrainian television on Friday.

Some analysts said they hoped Yekhanurov, a low-key technocrat and Yushchenko loyalist, would bring discipline to Ukraine's economic policy, which under Tymoshenko was characterised by public rows and inconsistency.

Yekhanurov was meeting members of the old cabinet on Thursday evening.

IDEALS OF REVOLUTION

In sacking Tymoshenko, whose fiery oratory brought thousands out on the streets in last December's pro-Western "Orange Revolution", Yushchenko moved decisively to end a crisis that has threatened his credibility.

The crisis follows months of tension between Yushchenko and Tymoshenko over Ukraine's economic direction and came to a head last Saturday when his chief of staff quit alleging deep corruption in the administration.

"We need to halt the disappointment in society and make sure that the ideals (of the Orange Revolution) are not cast into doubt," he said.

The allegations of graft hurt a government already tarnished by sharply lower economic growth, rising inflation and inconsistent policies.

Yushchenko also accepted the resignation of close ally Petro Poroshenko from his powerful security post and suspended another aide -- both of whom had been accused of involvement in graft.

Ukraine's state security (SBU) chief Oleksander Turchinov -- another Yushchenko ally -- tendered his resignation and Yuschenko replaced him with career SBU officer Ihor Dryzhchany.

CRUNCH ELECTION

Analysts predict next year's parliamentary election will be hotly contested.

Following changes to the constitution, the new parliament, not the president, will choose the government.

"Sacking Tymoshenko ... sets things up for a clash between Yushchenko and Tymoshenko in the March 2006 parliamentary elections, which will split the reform camp," said Tim Ash, emerging markets analyst at Bear Stearns in London.

Ukraine's acting prime minister Tekhanurov had in recent months publicly chided Tymoshenko for what he said was her erratic stewardship of the economy.

He was deputy to Yushchenko while the latter was prime minister in 2000. After the "Orange Revolution" he had been governor of the industrial Dnipropetrovsk region.

A simple majority of 266 votes in the 450-seat parliament is required to confirm Yekhanurov in his post. However, pro-Yushchenko forces do not have a stable parliamentary majority.

Some observers said the fact officials suspected of incompetence or graft had been sacked was, at least, an improvement on Kuchma's leadership.

"In the short-term, the government's resignation is likely to increase volatility on the currency market," said Oleksander Sandul, analyst at Foil Securities.

"But in the long-term, we look at it more optimistically. It says that the Orange Revolution was not in vain, that we are moving along the path of democratic changes."